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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: miscellaneous (N to Z): recycling credits

Under section 52(1) of the Environmental Protection Act 1990 waste disposal authorities, which are usually a local authority, but always a section 33 body (see VATGPB4000), must pay waste collection authorities (local authorities) when they divert waste from the household waste stream for recycling. The sum paid will be equivalent to the disposal authority’s net saving on disposal costs as a result of the waste going for recycling instead of disposal.

Where waste is collected and sent for recycling by third parties, who can be as diverse as local scout groups or existing recycling companies, then both the disposal and collection authorities have powers (under section 52(3) and (4) of the Act) to pay credits to the third parties. The amount paid will be the equivalent of what is saved on disposal or collection costs respectively.

The payments are not the consideration for a supply and so are outside of the scope of VAT. However, in some cases, although credits may be due to a third party they may be retained by a local authority as consideration for a supply made to that third party. For example, this might be for the granting of a licence to occupy a site with a bottle bank. In these circumstances the credits retained by the local authority are not outside the scope of VAT and the normal VAT rules apply.